THE PRINCIPAL COMMISSIONER vs. THE BELGAUM TALUKA RURAL

: 1 : IN THE HIGH COURT OF KARNATAKA DHARWAD BENCH DATED THIS THE 6TH DAY OF JANUARY, 2016 PRESENT THE HON’BLE MR.JUSTICE H.BILLAPPA AND THE HON’BLE MR.JUSTICE P.S.DINESH KUMAR I.T.A.No.100080/2015 BETWEEN: 1. The Principal Commissioner of Income Tax, Dr.B.R.Ambedkar Road, Belgaum. 2. The Income Tax Officer, Ward-1(2), Belgaum. .. APPELLANTS (By Sri.Y.V.Raviraj, Adv.) AND: The Belgaum Taluka Rural Industrial Co-operative Society, H.No.4883/56, Fulbag Galli, Belgaum-590002, PAN: AAAAT 4653R. .. RESPONDENT (Respondent served, but remains unrepresented) --- This ITA is filed u/S.260A of the Income Tax Act 1961 praying to formulate the substantial question of law stated above and allow the appeal and set aside the orders

: 2 : passed by the Income Tax Appellate Tribunal, Panaji Bench, Panaji in ITA.No.392/PNJ/2013, dt.11.2.2015 and confirm the order passed by the Income Tax Officer, Ward- 1(2), Belagavi. This ITA coming on for admission this day, P.S.Dinesh Kumar, J., delivered the following: JUDGMENT Revenue, aggrieved by the order dated 11.02.2015 passed in I.T.A.No.392/PNJ/2013, by the Income Tax Appellate Tribunal, Panaji Bench, Panaji (‘ITAT’ for short) has presented this appeal by raising the following questions of law: 1. Whether the Tribunal is right in law and on facts in holding that the assessee Society carrying on the business of banking to its members cannot be regarded as a primary co-operative bank ignoring the fact that the definition of primary co-operative bank enumerated in section in clause (ccv) of section 5 of the Banking Regulation Act, 1949, clearly provides that ‘primary co-operative bank’ means a co-operative society the primary object or principal business of which is transaction of banking business?

: 3 : 2. Whether the Tribunal is right in holding that the transaction of banking business means only with public, not appreciating the provisions of section 2(24)(viia) of the I.T. Act, 1961, according to which income includes the profits and gains of any business of banking (including providing credit facilities) carried on by a co-operative society with its members? 3. Whether the Tribunal is right in law holding that clause (ccv) of section 5 of the Banking Regulation Act applies only to the co-operative society if it carries on business with public other than members and holding that even if the society is carrying on banking business with its members it will not be covered by the definition of section 5(ccv) of the Banking Regulation Act, unless it has banking transaction with public when section 5(ccv) of Banking Regulation Act does not specify any such condition? 4. Whether in law and on facts the Tribunal is right in holding that the provisions of section 16 of the Karnataka State Co-operative Societies Act, 1959 permits admission of any other co-operative society as a member and therefore, the assessee has not satisfied the condition enumerated in section 5(ccv) of the Banking Regulation Act, 1949, to treat it as Primary Co-operative Bank within the meaning of section 80P(4) of the I.T. Act, 1961?

: 4 : 5. Whether the Tribunal erred in law and on facts in not appreciating the fact that the assessee society being a credit co-operative society engaged in banking business is a Primary Co-operative Society engaged in banking business is a Primary Co- operative Bank within the definition of section 5(ccv) of the Banking Regulation Act, 1949 and as such, requires to be reversed? 6. Whether the Tribunal erred in law and on facts in not appreciating the fact that the assessee being a co-operative society fulfills all the three conditions of being held a Primary Co-operative Bank as given in section 5(ccv) of the Banking Regulation Act, 1949? 2. Heard Sri Y.V.Raviraj, learned Standing Counsel for the Income Tax Department. The respondent is served, but remains unrepresented. 3. The incontrovertible facts of this case are, respondent is a Co-operative Society primarily carrying on the business of lending money to its members. For the assessment year 2011-2012, respondent claimed benefit under Section 80P(2)(a)(i) of the Income Tax Act (for

: 5 : short ‘the Act’). The Assessing Authority denied the said benefit. The appeal filed by the assessee before the Commissioner of Income Tax (Appeals) came to be allowed vide order dated 3.11.2014 holding that the assessee is entitled to the exemption under section 80(2)(a)(i) of the Act. Being aggrieved by the order passed by the CIT (Appeals), revenue preferred an appeal before the Income Tax Appellate Tribunal which came to be dismissed confirming the order passed by the CIT (Appeals). Hence, this appeal. 4. An identical case came up for consideration before this Court in I.T.A.No.100080/2014 in the case of CIT & Another v. Shri Mahalaxmi Urban Co-operative Credit Society Limited, Mudalagi, Gokak. After considering the earlier decision of this Court in CIT v. Biluru Gurubasava Pattina Sahakari Sangha Niyamitha (supra) and various other decisions mentioned therein, the questions of law raised by the Revenue in the said appeal were answered in favour of the assessee by order dated 21.09.2015, by holding thus:

: 6 : “10. We are in respectful agreement with the general view taken as to the interpretation of the relevant provisions of law, by the co-ordinate bench of this court, in the above and several other judgments adopting the same view. However, it is to be noticed that there is a seriously disputed question of fact which the Authorities under the IT Act have taken upon themselves to interpret in the face of the BR Act prescribing that in the event of a dispute as to the primary object or principal business of any co-operative society referred to in clauses (cciv), (ccv) and (ccvi) of Section 56 of the BR Act, a determination thereof by the Reserve Bank shall be final, would require the dispute to be resolved by the Reserve Bank of India, before the authorities could term the assessee as a co-operative bank, for purposes of Section 80 P of the IT Act. Any opinion expressed therefore is tentative and is not final. The view expressed by this court, however, as to the assessee being a co-operative society and not a co-operative bank in terms of Section 80P (4) of the IT Act, shall hold the field and shall bind the authorities unless held otherwise by the Reserve Bank of India. In the result, the above questions are answered in favour of the assessee and the present appeal of the revenue is dismissed.” 5. In the instant case also, the question that falls for consideration is as to:

: 7 : “Whether the Revenue has satisfactorily proved that the respondent-assessee may be construed as a Co-operative Bank, having fulfilled all the requirements contained in definition clause of Section 5(cci) read with Section 5(ccv) of the Banking Regulation Act, 1949 which would disentitle the asessee the benefit of Section 80P(2)(a)(i)?” 6. Having considered various previous judgments and the decision in the case of CIT v. Biluru Gurubasava Pattina Sahakari Sangha Niyamitha (supra) in extenso, this Court has disposed of the aforementioned ITA No.100080/2014 in the above terms. The issue involved in this appeal is identical to the issue in ITA No.100080/2014. We are in respectful agreement with the decision of this Court in the said appeal and do not find any merit in the questions of law raised by the Revenue for consideration. Accordingly, we hold that this appeal deserves to be dismissed. 7. At this juncture, the learned counsel for the Revenue submitted that the issue involved in this

: 8 : appeal has been taken up in a Special Leave Petition and the same is pending adjudication before the Hon’ble Apex Court. On this premise, he prays for liberty to revive this appeal in the event of the Revenue succeeding in the appeal/s filed before the Apex Court. 8. Having noticed that the issue involved in this appeal is identical to the issue in ITA 100080/2014, we have held that this appeal lacks merit and deserves to be rejected without notice to the respondent. However, this decision shall be binding inter party even if the Revenue succeeds before the Apex Court. Therefore, we consider that the request made by the Revenue seeking leave to revive this appeal as reasonable. 9. In the result, the appeal stands dismissed with liberty to the Revenue to revive this appeal in the

: 9 : event, Revenue succeeds in the SLP filed before the Apex Court on the same issue. No costs. Sd/- JUDGE Sd/- JUDGE Bss.